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The Changing Relation Between the Canadian and U.S. Yield Curves

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Listed author(s):
  • Kathlyn Lucia
  • Stephanie Price
  • Edwin Wong
  • Richard Startz

Abstract

The term structures of Canada and of the United States, two countries with historically close economic ties, have been closely linked. We investigate the link between Canadian and U.S. yield curves and show previously strong correlations between yield curve components dissipate after Canadian monetary policy reforms in the early 1990s. First, the effect is particularly evident in the diminished cross-country correlations of the short term bond yields. Secondly, cross-country yields are cointegrated before the reforms, but not afterwards. Lastly, the results on the term structure are shown using a vector autoregression with an endogenously determined break date for Canadian and U.S. estimates of the three-factor Nelson-Siegel (1987) yield curve model.

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File URL: http://www.econ.washington.edu/user/startz/Working_Papers/Changing%20Relation%20May%202008%20wp.pdf
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Paper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2008-05.

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Date of creation: May 2008
Handle: RePEc:udb:wpaper:uwec-2008-05
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  1. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
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  3. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
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  17. Paul Boothe, 1991. "Interest Parity, Cointegration, and the Term Structure in Canada and the United States," Canadian Journal of Economics, Canadian Economics Association, vol. 24(3), pages 595-603, August.
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Cited by:

  1. Levant, Jared & Ma, Jun, 2016. "Investigating United Kingdom's monetary policy with Macro-Factor Augmented Dynamic Nelson–Siegel models," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 117-127.
  2. Alexey Akimov & Simon Stevenson & Maxim Zagonov, 2015. "Public Real Estate and the Term Structure of Interest Rates: A Cross-Country Study," The Journal of Real Estate Finance and Economics, Springer, vol. 51(4), pages 503-540, November.

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